Lululemon Athletica Inc. shares fell the most since the start of the pandemic after lower-than-expected profitability raised concerns about a pileup of inventory and the yogawear maker’s full-year sales forecast disappointed Wall Street. 

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The shares fell 13 per cent in New York trading on Friday, their biggest drop since March 2020. The stock has now declined 17 per cent for the year to date.

Gross margin, a key gauge of profitability, was 55.9 per cent in the third quarter, short of analysts’ average estimate of 56.7 per cent. Inventories surged from a year earlier — evoking similar problems experienced by retailers that have led to profit-busting markdowns. 

“Gross margins came in well below expectations, which is a concern, especially as inventories are up 85 per cent,” Bloomberg Intelligence analyst Poonam Goyal said. 

On the company’s call with analysts Thursday, executives said the third quarter will be the high point for inventory. Chief Financial Officer Meghan Frank said the rate of inventory growth will moderate at the end of the fourth quarter. 

Lululemon raised its sales forecast for the full year ending in January to as much as US$7.99 billion. While that’s up from the previous range of as much as US$7.94 billion, the low end was still below analysts’ average estimate. 

Chief Executive Officer Calvin McDonald said the company hasn’t seen “any significant shift in spending among our guests.” 

“We’re off to a strong start this holiday season and I’m pleased with our results over the extended Thanksgiving Day weekend,” McDonald said in an interview. “Black Friday was the biggest day in our history in terms of both revenue and traffic.”

Lululemon’s stock decline could provide investors with an “opportunity in a high-quality name,” Wedbush Securities analyst Tom Nikic said in a note. Despite the inventory challenges, “brand momentum is extremely high” and categories like men’s and international are poised for growth. 

Barclays analysts also highlighted the brand’s ability to drive full-price sales in an “extraordinarily deep” promotional retail environment.

The company is looking to double sales by the fiscal year ending in early 2027 by opening more stores, expanding abroad and selling more products to men. It’s also trying a new two-tier membership program to keep customers coming back.

McDonald said the company’s manufacturing partners are back to full capacity. Freight times have also improved, although they remain higher than pre-pandemic, he added. The company has resorted to using air freight, which is more expensive, in recent years.